The Risk of Storing BTC on Crypto Exchanges

"Not your keys, not your coins" is a central ethos of the bitcoin community. It means if you're not the sole custodian of the private keys to your Bitcoin, then you do not truly own your bitcoin. And this rule is more important than ever.

Due to the "everything bubble" that's befalling the market right now, the crypto market is immolating again. One glimpse at Bitcoin Twitter, and you will find that they are actually thrilled to see shitcoins, NFT distractions, not-so-stable stablecoins, and "web3" unregistered securities being put through the wringer.

Another group facing stress is the cryptocurrency exchanges themselves.

Coinbase, one of the largest cryptocurrency exchanges globally, is a popular choice for many beginners because of its simple UI and mainstream presence. Unfortunately, casual users opt to keep their digital assets on the exchange instead of moving them into a secure self-custody option.

This week, Coinbase's earnings report laid out exactly why you should always take your bitcoin off the exchanges. In the document, Coinbase lists out what would happen if the company faced a bankruptcy event:

"Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our unsecured creditors."

Here's a screenshot:

What this means is if Coinbase ever were to go belly-up, you may not get your digital assets back. That's a serious risk to consider when deciding where to store your bitcoin. Although its CEO reassures there is no current risk of bankruptcy, proper bitcoin storage should be practiced regardless.

I covered the different ways to store Bitcoin in a previous article. In the meantime, now is a good time as ever to understand why Bitcoin is different from the rest of the digital asset space. I recently joined a weekly Bitcoin book club, and it's a great place to start learning interactively. The first discussion is this weekend.

We'll see which systems have the fundamentals to endure during these tenuous times. Time to educate and avoid the stilts.

This article, along with all content and opinions from BTC Examiner, is for educational purposes only and is not financial advice. Please reach out to your independent financial advisor before making any investment.